WHAT IS A "PREAPPROVED" HOUSE?

The competition that exists in our real estate market today is intense. Even though we have seen falling inventories in the Denver Metro Area this year (a very positive development), there are still over 20,000 homes on the market.

And 85% of those homes will not sell in the next 30 days.

Strategies for selling real estate evolve. Market conditions evolve. Trends evolve.

For sellers serious about getting their home sold this summer, let me suggest the following strategy: get it preapproved.

How do you get your home preapproved?

* By hiring a home inspector to do a thorough examination of the property, noting any defects, and then taking action to correct them. This would happen anyway, once we are under contract... but being proactive in this regard eliminates surprises earlier and shows buyers that you are committed to a fair transaction.

* Hire an appraiser. That's right, get your home appraised before it's listed. With all of the negative press, every buyer is concerned about overpaying, and a fair appraisal will show you are not unrealistic with the price you are asking.

* Offer a home warranty. For less than $300, we can offer the buyer a one year home warranty that guarantees appliances and important items like air conditioners and furnaces remain serviceable after closing.

* Four hours of handyman services after closing. We can create a gift certificate good for four hours of handyman services after closing to address and loose items around the house that need "tuning up".

Good salespeople will tell you that buyers buy with emotion, then justify with logic. For less than $1,000, we can create tremendous positive emotion around your house.

Eighty five percent of listings on the market are not going to sell in the next 30 days. To be part of the 15% that will sell, you need to be different. And better. That's why "preapproving" your home makes all the sense in the world.

REO's: THE FRENZY CONTINUES

Altos Research reported this week that Denver had the fastest rising list prices of any housing market in the country, with the average asking price rising by 3.7% during May.

One reason is the noticable increase in competition for foreclosures among investors and first-time buyers. In many areas it is now cheaper to own that to rent, which is putting cashflow-minded investors in direct competition with bargain-hunting buyers.

Overall ACTIVE housing inventory is down over 5% from one year ago in the Denver MLS, and as new foreclosure inventory becomes more scarce, the bidding wars are under way.

I cited a few weeks ago how difficult it is becoming to get offers accepted on bank-owned properties. How it's not uncommon to see investors, agents and bargain shoppers lined up in front of new listings as soon as they hit the market.

Banks are taking note, and they are starting to raise their list prices.

Although the competition for these lower priced properties is causing headaches for buyers and real estate brokers alike, it's a good sign for our market. We need to clear out the foreclosure inventory and get back to a more normal market.

One word of caution: rising rates are a real concern right now, and a spike in interest rates could delay our overall recovery. First-time buyers are more rate sensitive than most investors, however, and anything that keeps first-time buyers on the sidelines will likely continue to push rents higher as landlords take advantage of a red hot rental market.

POTTERY BARN PERFECT

Just a quick entry to promote a new listing in Thorncreek Village: 13050 Grant Circle West, Unit B.

This two bedroom, three bath condo built by D.R. Horton is just two years new, with rich custom colors, neutral carpet and a complete upgrade package including granite tile counters, cherry cabinets and brand new stainless steel appliances. It measures 1,565 square feet spread over two stories, and the oversized Master bedroom has an incredible sitting area with a gas fireplace.

There's also a private, fenced yard that makes this condominium very pet friendly, and great common areas with a community pool and full clubhouse facilities. Thorncreek Golf Course is just a short walk away.

Listed at $199,900, this is a pure "turnkey" property. With a two-car attached garage and all appliances included, it's the nicest unit on the market in Thorncreek Village. Please call me for more information, or to schedule a private showing.

The MLS number is 673058, or you may view it online at http://www.thorncreekvillage.info/

CRS 210: CREATING A REFERRAL-BASED BUSINESS

In my ongoing pursuit of the CRS designation, last week I attended CRS 210, a two-day seminar on "Creating A Referral Based Business". The class was taught by Chuck Bode, a 24-year real estate veteran who has built one of the most impressive referral-based business models in America.

(A quick word about the CRS program: CRS stands for Council of Residential Specialists, the highest designation in real estate. The CRS designation carries the highest education, production and experience requirements of any program in the industry. In fact, only 4% of agents are CRS certified, and those agents accounted for 26% of all transaction sides last year. If no other piece of information was available to you in selecting an agent, simply choosing a CRS would be the smartest decision a buyer or seller could make.)

If you want to build a "clients for life" model, you must deliver an experience that blows your clients away.

In Jeffrey Gitomer's book "Satisfied Clients are Worthless", the author argues that clients in a service-based transaction expect to be satisfied. To simply meet a client's expectations is no longer acceptable. Unless you dazzle your clients during the transaction and commit to staying with them afterwards, you will always be chasing the next deal.

FOLLOW THE PEOPLE, NOT THE DEALS.

We devoted a full day to developing a theme called "Amaze, Amuse, Surprise and Delight". It was all about building an experience around the delivery of your services. And creating effective after-closing programs for staying in touch and being available to solve problems long after the last documents are signed. (Many of you will be joining me next month for my next Client Appreciation Party - a great tool for staying in touch)

Relationships are a process, not an event. The ingredients that drive them are time and trust, which is what I give to my clients.

Is your agent pursuing a relationship, or chasing a transaction? The answer makes all the difference.

WHAT IS A CUSTOMER?

What is a Customer?

A customer is the most important person in any business.

A customer is not dependent on us. We are dependent on him.

A customer is not an interruption of our work. He is the purpose of it.

A customer does us a favor when he contacts us. His call breathes life into our business.

A customer is part of our business – not an outsider. A customer is not just money in the cash register. He is a human being with feelings and deserves to be treated with respect.

A customer is a person who comes to us with his needs and wants. It is our job to fill them.

A customer deserves the most courteous attention we can give him. He is the lifeblood of this and every business. He is your livelihood.

Without the customer, our doors would close.

TIM RUSSERT: BEST IN A GENERATION

For a real estate blog, this is a bit of a digression.

But I am compelled to share a few thoughts about Tim Russert, who passed away today at 58.

As a journalism major and someone who used to have deep political connections back in Sacramento, Tim Russert has always been my favorite political journalist. Not because his views always agree with mine - but because I found him honest, all the time.

I quit watching television news well over a decade ago, and I no longer take a paper. I follow headlines on my BlackBerry and when I want to know more about something, I can Google my way to whatever I need.

But my respect for Tim Russert endured. Fair, knowledgeable, honorable and not afraid to ask hard questions. Of anyone.

In fact, last year I read "Big Russ and Me", which Russert wrote partly as an autobiography but more as a tribute to his working class father. A great book about what is possible within a family when honor and integrity rule the household.

Head and shoulders above his peers... honest and prepared, every week... host of the ONLY program I always made time to watch.

And now signing off.

"If it's Sunday, it's Meet the Press..."

MAY METROLIST STATISTICS

THE MARKET
Active Homes on the Market as of 5/31/08: 26,333
Active Homes on the Market as of 5/31/07: 28,845
Change: - 9.54%

Homes Under Contract as of 5/31/08: 6,338
Homes Under Contract as of 5/31/07: 6,354
Change: - 0.24%

Homes SOLD in April 2008: 4,664
Homes SOLD in April 2007: 5,046
Change: – 8.21%

WHAT IT MEANS
There is no denying that we are seeing a significant shift in this market.

It starts with foreclosures, which have been the black cloud hanging over us for more than four years. I have said for some time that because Colorado was the first state to go into a foreclosure crisis, we would be one of the first to come out, and that is happening right now.

First, let’s explain why this is…

In the early part of this decade, home prices were spiraling upward everywhere… except Colorado. The tech crash and scaling back in the airline industry after 9/11 hit our economy hard, and we were losing jobs at a time when the rest of the nation’s economy was roaring.

So let’s look at the case of two “subprime” buyers who bought homes in 2003. Remember that as long as values were going up, banks were fearless about lending money.

Buyer #1 is in California, and he uses a “subprime / stated income / no doc” loan to purchase a $300,000 home. He takes an adjustable rate loan and figures he will ride the appreciation wave. Twelve months later, his payments balloon and he can no longer make them.

Because his home is now worth $350,000, there’s no risk to the bank. So Buyer #1 either slaps a HELOC on his house and pulls out equity to make his payments, or he sells for a $50,000 gain, pays off the bank and buys another, bigger house.

Buyer #2 is in Colorado, and this person uses a “subprime / stated income / no doc” loan to purchase a $200,000 home. Twelve months later, when payments go up, this buyer finds his home is only worth $195,000, and now he’s got a problem.

Buyer #2 can’t make the payments, can’t sell his home for enough to pay off the bank, and has no equity to access.

He is dead.

And that is why Colorado led the nation in foreclosures (per 1,000 households) in 2005 and 2006. By 2007, we had fallen to 12th, and this year, depending on which report you look at it, we are somewhere between 20th and 27th.

The biggest single shift in the market over the last 90 days has been the sudden, fierce competition for foreclosures. Buyers and investors seem to be in agreement that we have hit bottom, and the reality is that foreclosures in decent condition are now selling for over list price, with multiple offers.

The effect this has on the rest of the market is positive, because there is a glut of privately owned homes on the market priced at $250,000 and below that simply could not compete with discounted bank inventory.

Get rid of the bank-owned homes (or at least reduce the flow from a flood to a fast drip), and now this large group of owners at the lower price points have a chance to sell and move on.

Activity breeds activity, and as long as rates stay low, you have the potential to see quite a healing over the next 12 months.

Back to the inventory numbers above.

The most striking figure is simply the trend in homes on the market over the past four months.

For single family homes, the year over year inventory trend looks like this:

FEB: 4.21% MORE homes on the market than one year earlier
MAR: 0.02% FEWER homes on the market
APR: 2.07% FEWER homes on the market
MAY: 5.66% FEWER homes on the market

For condos, the trend is even more pronounced:

FEB: 8.73% FEWER condos on the market than one year earlier
MAR: 13.16% FEWER condos on the market
APR: 17.13% FEWER condos on the market
MAY: 20.50% FEWER condos on the market

This huge drop in inventory, especially among condos, is happening at the lower price points in our market. Basically, it’s less foreclosure inventory.

Days on market for SOLD homes has fallen from 111 for single family homes in February to 99 today, and from 123 for condos in February to 104 today.

If you are a buyer in this market, your choices are starting to shrink.

Keep in mind that at the mid-level price points ($250k to $400k), we have a mostly normal market, and at the higher price points ($400k and above), there is still a six to ten month supply of inventory.

The healing starts at the bottom of the market, and it seems to be happening right now.

MY MEETING WITH DAVE LINIGER

I had the privilege of meeting Dave Liniger and Margaret Kelly last week at RE/MAX International Headquarters in Denver.

For the uninitiated, Dave Liniger is the President and Founder of RE/MAX International, and Kelly is his CEO. The RE/MAX organization manages and supports over 100,000 agents worldwide from its Denver HQ.

What Dave Liniger has built in 30 years is truly amazing. The RE/MAX model was groundbreaking for agents in the industry. It basically boils down to hiring agents who have the talent, confidence and ability to write a hefty check each month for the privilege of using the RE/MAX name, with the tradeoff being that agents keep more of their commissions.

If you don't sell, you starve. Therefore, RE/MAX agents work!

In my office, agents average over 13 years experience. For RE/MAX nationwide, agents average over eight years of experience.

If you want to be the best, you get around the best, which I why I chose to affiliate with RE/MAX. Jim Wanzeck, Kim Wermerskirchen and the management team behind my office run an efficient, profitable and professional operation.

Spending time with Dave Liniger and Margaret Kelly last week only solidified my thinking about the RE/MAX brand - it's where serious, full-time agents come to excel.

NICE REO = SOLD REO

Four times in the past ten days, I have written contracts on REO properties.

Four times there have been multiple offers. Four times the homes have sold for OVER list price.

All of a sudden, I can't get my clients to new REO listings fast enough to write an offer.

I have spoken with major REO agents in town who confirm that their reality mirrors mine... a major dropoff in REO listings and intense competition for the ones that are structurally sound, priced right and in decent condition.

I strongly suspect the days of lowballing the bank are over, or at least on hold for a while. I really believe buyers have run out of excuses, and there is a shift in psychology taking hold right now that is going to change the dynamics of our market.

Once the foreclosure inventory burns off, with highly (even overly) qualified buyers replacing a generation of subprime borrowers who paid too much for homes, where does the market go?

The way it looks now, waiting equates to fewer choices, more competition and, most likely, higher interest rates.

MORTGAGE FRAUD IN COLORADO ON THE DECLINE

The number of suspicious activity reports related to mortgage fraud increased 31 percent in 2007 compared to the year before, to 46,717, with 60 percent of those incidents involving false claims on loan applications such as employment history and claimed income.

That's according to an annual report on mortgage fraud by the Mortgage Asset Research Institute (MARI), which said Florida and Nevada led the nation in the rate of suspected mortgage fraud cases, followed by Michigan, California, Utah, Georgia, Virginia, Illinois, New York and Minnesota.

Colorado showed the greatest improvement in this year's report, falling from ninth place last year to 17th, and leaving MARI's list of the top-10 states for mortgage fraud for the first time in five years.

I work hard to educate my buyer clients about what has happened in Colorado over the past few years... how we were one of only two states in the country to have no licensing or registration for mortgage brokers until 2007... how builders, lenders and appraisers have worked in tandem to overvalue new construction... and how the Colorado Real Estate Commission (CREC) has brought down the hammer on those who cheated the system over the past few years.

In 2005, Colorado led the nation in foreclosures per capita. In 2006, we did it again. In 2007, we fell to 12th. And this year, the Mortgage Bankers Association says we're 20th in foreclosures and 40th among the 50 states in delinquencies.

There's no question we're trending in the right direction.

ARCHITECTURAL VOCABULARY TEST

This is just a fun little exercise with architectural jargon, but when it comes to negotiating repairs it's important to know the difference between a banister and a baluster. While sophisticated HGTV fans may know their antae from their astragals, as it were, a few stubborn terms are still routinely confused -- sometimes even among architects. Here are the usual suspects:

Cement/concrete: Cement refers only to the powder that hardens when you add water. If you add sand and aggregate to the mixture, though, you get concrete. So strictly speaking, a cement mixer should be called a concrete mixer.

Sash/window: The part of a window that moves is called the sash. The whole shebang -- sash, jambs, sill and everything else -- is called a window.

Mullion/muntin: A mullion is a heavy vertical or horizontal member between adjoining window units. Muntins are the narrow strips of wood that divide the individual panes of glass in traditional sash. In the case of so-called "simulated divided lites," grilles resembling muntins are either sandwiched between double glass panes or else installed over the outer surface of the glass to give a divided look.

Trim/casing: On the outside of a house, the decorative frame around a door or window is called trim, while on the inside, the same thing is called casing. Go figure.

Sliding door/pocket door/bypassing door: The term sliding door refers only to the sliding glass variety that usually leads outside. Those interior doors that disappear into a slot in the wall, on the other hand, are properly called pocket doors. To make things more confusing, the type of paired closet doors that slide past each other aren't called sliding doors either -- they're called bypassing doors.

Girder/header/beam: In wood-frame construction, a heavy horizontal member is called a girder if it's below floor level, a header if it's over a door or window, and a beam if it's pretty much anywhere else.

Wall/partition: Structurally speaking, a wall is always bearing, while a partition is always nonbearing. In most houses, the exterior walls and at least one wall running down the middle of the house are bearing, while all the other walls -- er, partitions -- are nonbearing. Since these two varieties aren't always easy to tell apart, it's prudent to call in an architect or engineer before you go tearing out either one.

Shingle/shake: Wood shingles are sawn by machine and are relatively thin. Wood shakes are larger and thicker than shingles, and are split from a solid block of wood rather than sawn.

Flue/vent: Both of these things stick out of your roof, but a flue exhausts combustion gas from a fireplace, water heater or furnace -- anything with a flame -- while a vent leads those nasty gases in your plumbing system to the atmosphere.

Banister/Baluster: Banister refers to the entire railing on a staircase. Balusters are the individual uprights in any railing, whether on a stair, a balcony or whatever. So it's fine to slide down the banister, but you probably wouldn't want to slide down the balusters.

HOUSING BEARS, COVER YOUR EYES

Wait a minute - this can't be right! Colorado home values are... rising??

There's a whole education waiting to be had on the methodologies behind those reports that tell us the sky is falling on the housing market. (For an interesting dissection of the gloom and doom "Case-Shiller" index, also known as the "Bubble Market Index", see this recent article by Bernice Ross: PUT A GAG ON CHICKEN LITTLE )

The chart above is from the OFHEO - the government agency responsible for monitoring the financial health of mortgage giants Fannie Mae and Freddie Mac.

What's unique about this report? Well, since Fannie and Freddie only purchase conforming loans up to $417,000, the snapshot here reflects properties with loans of $417,000 or below where people actually had to go through some qualification process to get financed. It's a good representation of the core of our market.

Among Colorado properties with Fannie/Freddie financing, OFHEO reports year-over-year appreciation of 2.3%.

Hardly scintilating returns, but hardly the meltdown you've read about in the Denver Post, which recently reported that Metro area home values fell 10% last year, based on a drop in the median price (see my post from two weeks ago for more about this).

I'll say it again... yes, there is distress at the bottom of the market, which is also where most of the junk loans were made. Because of this, there's a lot more activity at the bottom of the market - hence, the drop in median price. There are winners (first-time buyers) and losers (low-end sellers competing with bank foreclosures). But the notion that our housing market is universally down is just wrong.

Inventory is falling, foreclosures are slowing, interest rates are low (but starting to creep up, due to $130 per barrel oil) and there are deals to be had, especially at the lower price points.